Technopaedia —

Universal service fund

Many developed countries have made telephone service “universal” by supporting its rollout even into remote rural regions. In the US, the money to do this comes from the Universal Service Fund (USF),which collects more than $8 billion each year from phone companies—and ultimately from users—and redistributes the cash to make phone service accessible to the poor, rural residents, schools, and some healthcare providers. In total, USF amounts to a 14 percent tax on telecommunications.

The USF currently consists of four funds, each directed at one of the above goals. More than half of the money paid out comes from the “high cost” fund, which subsidizes phone service in expensive locations and routinely comes in for criticism. That's because of companies like Weavtel, a tiny Washington state telco that raked in $301,966 in USF money in 2009—all in order to support 17 copper telephone lines. That's an average of $17,763 per line in order to run lines to a remote town accessible only by boat. And once the lines are installed, the money keeps flowing.

USF money goes to larger players, too. In 2009, for instance, AT&T earned $34.4 billion and was hugely profitable, but it still took $435 million in USF money. Most telephone companies get USF money, usually to support their most rural operations, but it often goes to place where unsubsidized (usually wireless) providers already exist. Not surprisingly, USF practices are often criticized, even by the US government.

While the program has certainly done its part to make telephone service ubiquitous in the US, it currently acts as a huge tax on communications services—and one directed at an increasingly archaic goal. That's why, when the FCC unveiled its very first National Broadband Plan, it proposed channeling that $8 billion in USF money to broadband instead of to telephone service. The new plan is designed to avoid many of the excesses of the high cost fund and it would force every company taking USF money to offer broadband service instead of simple analog phone connections. But it needs to be adopted first, and to date USF reform has languished beneath more pressing matters.